PFS Education Planning & Financial Analysis 2

Question 1

The debt-to-income (DTI) ratio is primarily used in financial planning to evaluate a client's:

Accepted Answer

Ability to manage and service existing and new debt

Answer

The DTI ratio compares total monthly debt payments to gross monthly income and is a standard measure of a client's debt-servicing capacity.

Question 2

A client has total assets of $850,000 and total liabilities of $320,000. What is the client's net worth?

Accepted Answer

$530,000

Answer

Net worth equals total assets minus total liabilities: $850,000 − $320,000 = $530,000.

Question 3

The standard financial planning recommendation for an emergency fund is liquid assets covering how many months of living expenses?

Accepted Answer

3–6 months

Answer

Financial planners typically recommend 3–6 months of living expenses in accessible, liquid accounts, with those having variable income targeting the higher end.

Question 4

Which personal finance ratio measures the percentage of income directed toward savings and investments?

Accepted Answer

Savings ratio

Answer

The savings ratio (savings ÷ gross income) measures what fraction of income is being accumulated for future goals rather than spent on current consumption.

Question 5

On a personal cash flow statement, net cash flow is calculated as:

Accepted Answer

Total income minus total expenses

Answer

Net cash flow equals total inflows (all income) minus total outflows (all expenses), revealing whether the client has a monthly surplus or deficit.

(PFS) Personal Financial Specialist Practice Test

(PFS) Personal Financial Specialist Practice Test

PFS Education Planning & Financial Analysis 2